Stephen B. Bratspies
Chief Executive Officer at Hanesbrands
Thank you, T.C. Good morning, everyone. Welcome, and thank you for joining our call this morning. Today, I'll provide a check-in on our full potential strategy with a review of the areas of the business where we're doing extremely well, where we know we need to do more and where things are challenging right now. Before I dive into that update, I'll begin by touching on our second quarter results. After my remarks, I'll turn the call over to Scott to discuss the details of the quarter and our second half outlook.
Touching on the quarter's performance, we're pleased that revenue, operating profit and earnings per share were in line with our outlook. We're also pleased that several of our key performance metrics are improving. We delivered 90 basis points of sequential gross margin improvement. We continue to reduce inventory, achieving a year-over-year reduction of $255 million or 12%. We generated positive operating cash flow for the quarter and year-to-date. And because of the strong cash generation, we began paying down debt earlier than expected.
U.S. Innerwear delivered a strong quarter with results that were ahead of expectations, including sales growth of 3% over last year and 440 basis points of sequential margin improvement. On a constant currency basis, international sales were consistent with prior year. Growth in Champion Asia and stable performance in Champion Europe essentially offset the decline in our Australia business, which was driven by a very challenging macroeconomic environment. In U.S. Activewear, sales and operating profit were below our expectations. The combination of soft category dynamics and the near-term impact from our strategic brand-related actions continue to weigh on U.S. Champion sales.
Looking at the rest of the year, the headwinds impacting our Australia and U.S. Activewear businesses have increased, which is the primary driver for our adjusted outlook for the second half. That said, we remain on track for strong margin recovery and we expect to exit the year with gross margin in the high 30% range to generate $500 million of operating cash flow and to pay down more than $400 million of debt.
Now, I'd like to provide a progress check-in on our initiatives that are part of our full potential plan, beginning with our Champion business. Champion is a great brand. It is over 80% domestic and 65% global awareness and a significant global growth opportunity. We've made solid progress on improving the operations and processes within the Champion business that position us for future growth. However, the timing of these actions translating to financial results has been mixed. In Asia, where the brand is the most advanced in terms of product and chain segmentation, we're experiencing strong growth. In Japan, the combination of new product launches and the ramp-up of our loyalty program are driving strength in our retail business.
And in China, we continue to work with our partners to open new stores, launch new footwear franchises and develop localized product and marketing to build a strong foundation for future growth. In Europe, despite the macroeconomic headwinds, the business is stable. We've seen solid performance within our retail business. Our footwear business continues to build momentum, and we're leveraging our global scale by bringing our top-performing styles to the U.S. This performance is balanced against the headwinds we're seeing in wholesale as retailers take a more cautious approach to fall/winter orders.
In the U.S., Champion is not where we expected it to be at this point in time. This is clear in our results and our outlook. And as a result, we're actively taking steps that we believe will drive the long-term success of the brand. We brought in new leadership, which is driving new talent in design, merchandising and sales. We've coordinated and launched our new brand purpose of Champion a better tomorrow. We've completed our first full global product line from the new team, which is based on our disciplined global segmentation approach and will be available for the 2024 fall/winter selling season.
In total, nearly one-third of our 2024 product and fabric platforms will be global versus zero today. This will reduce SKU complexity and drive additional cost savings beginning next year. We've streamlined our supply chain operations, including balancing third-party sourcing and internal manufacturing, consolidating sourcing partners and shifting to dedicated Champion DCs. And we're taking the necessary steps of shifting our channel mix in the U.S. This is a big initiative that's taking longer than expected, due to the category and channel inventory headwinds. It's the right thing to do for the brand for the long term, and we're receiving very positive feedback from our retail partners.
In addition to the natural margin recovery, we expect next year from lower input costs and the benefits of using global product platforms, we've also taken recent additional actions to improve Champion's performance in the U.S. We quickly opened seven pop-up Champion stores to move through excess inventory in a way that preserves margins and brand equity. We've established partnerships with industry-leading licensees for kids apparel and outerwear with the potential for additional categories.
We're also beginning to leverage our successful performance in the collegiate channel by using our quick-turn graphics capabilities to drive incremental revenue opportunities in our wholesale business. We're doing a lot to position Champion for success. We're making progress, and we're continuing to adapt to the environment. We remain highly confident in the potential of the brand. However, we expect Champion sales in the U.S. to continue to be pressured throughout the rest of the year.
Turning to Innerwear. Our U.S. business is on track and reflects the execution of our full potential strategy. If you recall, the goal was to take a consistently declining business and return it to growth and we're seeing this play out as we're connecting our brands with younger consumers and regaining momentum. Consumer-focused innovation is up 30% over last year. Our innovation pipeline is full, providing us visibility to new product launches through 2025, including the launch of M by Maidenform this fall. We're telling our brand and product stories as well as supporting our innovation launches, such as our recent nationwide campaign for Hanes Originals. We've increased our back-to-school presence with a 9% increase in off-shelf displays and we gained permanent retail shelf space from another national brand that will set this fall.
Our supply chain segmentation work has driven a focus on less inventory, fewer, more profitable SKUs, improved efficiencies in our DCs and reduced product delivery times from Asia by over 40%. We're also leveraging data analytics to help our retail partners improve Innerwear on-shelf availability to drive sales and make more efficient inventory investments. And we're executing a thoughtful long-term pricing philosophy that ensures a winning brand proposition by differentiating our brands, enabling shelf space gains and delivering value for our consumers and our retail partners.
With respect to our international Innerwear operations, as I previously mentioned, Australia continues to face headwinds as higher interest rates are significantly weighing on consumer spending in our categories. Despite their macro challenges, the team is doing an outstanding job and continues to make progress on executing our long-term strategy. We continue to bring innovation to market. Our innovation products are performing above our expectations, led by the lineup of bonds Absorbency products. We're delivering value to the consumer, and most importantly, we've gained market share. We believe our business in Australia is very well-positioned to return to growth once the macro pressures ease.
Taking a step back, from the outset, full potential has been about leveraging our iconic brands and competitive advantages, simplifying all aspects of the business and focusing on the biggest growth opportunities and this remains true today. We're making progress in many areas. Innerwear is regaining momentum. Gross margins improved 90 basis points sequentially, as previously discussed. We're on track for strong margin recovery and we expect to exit the year with gross margin in the high 30% range as inflation continues to roll off our balance sheet.
We continue to make structural changes to our agile supply chain and organization as well as take costs out of the business. The most recent example is after a broad review of our global operations we reorganized and relocated approximately 250 corporate roles to leverage our talent pools outside the U.S., standardized processes and reduce expenses by approximately $15 million. Furthermore, we're unlocking working capital as we decreased inventory by 12% or $255 million year-over-year. We're generating cash and are on track to deliver $500 million of operating cash flow for the year. And we're on track to reduce debt by more than $400 million this year, with approximately $100 million already paid down in the second quarter.
We're proud of these achievements, but there's work left to be done, and we're taking action. In addition to the steps I referenced for U.S. Champion, we're identifying additional cost savings initiatives across the organization. We're also actively looking across the business had additional options to enhance shareholder value. This includes options to address our debt to further simplify the business and to accelerate revenue growth and margin improvement.
Before I turn the call over to Scott, I'd like to take a moment to congratulate him on his appointment to CFO that we announced a few weeks ago. Scott did an excellent job as our interim CFO and I want to thank him for his hard work and dedication. He's a great partner and I look forward to continuing to work together.
And with that, I'll hand the call to Scott.
